Thursday AM: GBP Holding Pattern | USD: Data Deluge | CAD: Poloz, Ivey PMI | Market Sentiment Hurts AUD, NZD

Currency analysis

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A bout of 'risk-off' sentiment has hit global markets this Thursday ensuring the Dollar and Yen sit atop the leaderboard while the Australian and New Zealand Dollar struggle.

The losses suffered by the likes of the AUD and NZD come in sympathy with losses in China's yuan which has weakened on fears of a fresh flare-up in U.S.-China tensions, after a top executive of China's Huawei was arrested in Canada at Washington's request.

According to commentators, the arrest could drive a wedge between the countries just days after President Donald Trump and President Xi Jinping agreed to a temporary truce in their trade war while the two sides resumed negotiations.

The Chinese embassy “lodged stern representations with the US and Canadian side”, urging them “to immediately correct the wrongdoing”.

RBC Capital's Asia strategist Sue Trinh says the Huawei news can be seen as another sign of the Western push to contain China.

The U.S. and Australia have already barred Huawei 5G from their networks, last week, New Zealand joined them, citing a "significant network security risk" and overnight, the UK's BT adopted a similar policy.

Canadian authorities said they had arrested Huawei's global chief financial officer in Vancouver, where she is facing extradition to the United States. The arrest is related to violations of U.S. sanctions, a person familiar with the matter tell Reuters.

Markets had already been worried about the prospects for a trade deal after Trump and Xi agreed to a 90-day negotiating period, which many analysts said was too short to adequately resolve a host of highly divisive trade and policy issues.



The economic calendar is quiet today and traders will likely continue tracking moves in the House of Commons in order to ascertain potential Brexit outcomes.

The third day of the five day debate on the Brexit deal takes place today, with the economy likely to come into focus.

We don't expect anything out of this debate that might moves Sterling as the lines have long been drawn: 'remain' MPs will remind one another that a 'no deal' Brexit is bad for the economy, 'Brexiteer' MPs will argue the UK faces a bright future trading with other nations outside of the bloc.

The arguments are stale.

What matters is whether or not the government can get the deal passed, and if not, the scale of the loss.

We feel Prime Minister Theresa May will take a narrow loss as something of a win that will allow her to come back to the House with a modified deal for a second vote.

What therefore matters is whether or not the Prime Minister can get any changes out of the European Union that will be acceptable to the DUP and Brexiteers in the Conservative party.

Should a second vote fail then the Prime Minister will come under huge pressure to step aside and allow for a new government to form, or introduce a second referendum to break parliamentary logjam.

Expect uncertainty to reign for a while yet.




Good news out of Germany this morning saw factory orders expand 0.3%, markets had expected a contraction of 0.4%.

Expectations were subdued owing to the slowdown in economic growth suffered by the German economy over the course of the second half of 2018.

This data could go some way in calming nerves about the trajectory of growth in the Eurozone's largest economy.

There are no major releases on the calendar today.

"EUR/USD remains relatively side lined near term. It is currently unable to maintain a leg higher or sustain a slide lower and the market is relatively neutral. We maintain for now a slight upside bias," says Karen Jones, an analyst with Commerzbank in London.



The Dollar will be focussed on domestic issues once more now that markets are back in play following yesterday's closure to mark the burial of former President George H Bush.

The first notable release is the ADP non-Farm Employment change at 13:15 GMT, a reading of 196K is forecast. The data should confirm whether or not employment trends remain consistent with a policy of rising interest rates at the U.S. Federal Reserve.

A beat on the 196K forecast would therefore be good for the Dollar.

Initial Jobless claims are out at 13:30 and are forecast to show a reading of 226K.

The trade balance will be released at 13:30, and deficit of $55.20BN is expected.

Markets will likely show an academic interest in the numbers as they try to gauge the effectiveness of President Donald Trump's tariff crusade.

At 14:45 the Markit composite PMI is released, this is the reading that incorporates the likes of services and manufacturing PMIs to cover a more holistic survey of the state of the economy

A reading of 54.4 is forecast.

Factory orders are out at 15:00 and markets are looking for contraction of 1.9% to be reported.

Perhaps the biggest release of the day comes in the form of the ISM non-Manufacturing PMI; this is effectively the U.S. version of the Markit Services PMI in the UK.

A number of 59.2 is forecast, a figure that signals an ongoing robust expansion of the U.S. economy.

"The Institute of Supply Management (ISM)’s non-manufacturing sector index is forecast to fall substantially. We have to look at this in context, though. September’s reading of 61.6 was the highest level in 21 years, a period that includes during the 1999/2000 internet bubble and the housing bubble of 2006/07. The average is 54.5 (the index was started in July 1997). So a decline from these lofty levels is not necessarily disappointing; that’s the way these indicators work. It’s still in healthy expansionary territory," says Marshall Gittler, a strategist with ACLS Global.



There are some numbers out of Canada to be aware of with trade data at 13:30 GMT kicking off proceedings.

Markets are looking for a trade deficit if C$0.70BN to be reported for October.

A smaller deficit should, on paper at least, be good for the Canadian Dollar.

However, expectations for a CAD-positive outcome are not shared by ACLS Global's Gittler:

"The Canadian trade deficit is forecast to widen somewhat from the previous month but still remain narrower than trend. On the one hand, the widening should be looked at as a good sign as part of it is due to a rebound in imports, reflecting a healthy economy, plus higher auto production. On the other hand, part is due to lower energy prices, and that’s likely to weigh on the prospects for Canadian trade in future months after Alberta announced cuts in oil production. Net net, I think the market will look on this widening of the deficit as the beginning of a trend and it will be taken as negative for CAD."

Bank of Canada Governor Poloz speaks at 13:45, the address comes a day after the Bank signalled a somewhat softer stance on monetary policy.

The communication from the Bank sent the Canadian Dollar lower, and markets will be looking for any follow up communications from the Governor that might entrench the move.

The currency fell sharply after the Bank of Canada’s statement expressed concerns about growth due to global trade friction and oil-production cuts and also suggested that there might be room for more non-inflationary growth. The odds of a rate hike at the January meeting fell to 26% from 57% right before the meeting.

"Poloz will be presenting an economic progress report that will be closely watched after yesterday’s dovish statement. While Poloz tends to be more optimistic than the rest of the GovCo on trade, our rates team do not expect the dovish tone to be walked back in material fashion, leaving USD/CAD vulnerable to the topside after the bullish breakout above a triple top at 1.3348. This level, along with 1.3000 will now serve as support, with resistance at 1.3436," says Adam Cole, a strategist with RBC Capital.

The Ivey PMI for November is released at 15:00; this is Canada's primary survey that offers the best timely insight into how the economy is performing.

A reading of 60.3 is expected by markets.




As mentioned, the Australian Dollar is something of a laggard today thanks to shifts in global sentiment.

Domestic data overnight was on balance neutral for the currency with retail sales for October reading at 0.3% month-on-month, exactly where markets had anticipated.

The trade balance for October delivered another strong surplus of A$2.31BN, while this is below the 3.1BN expected by markets it is nevertheless broadly supportive and marks the economy's ongoing trend from running a trading deficit to a surplus and is therefore on the whole supportive of the AUD.

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